By Amy Goldstein and Carol D. Leonnig
Washington Post Staff Writers
Thursday, March 19, 2009
The chief executive of American International Group, trying to quell the wrath of the public and politicians over millions of dollars in bonuses, told Congress yesterday that he had just asked a few hundred employees of the beleaguered insurance company to give back at least half of the extra pay.
Edward M. Liddy, brought in last fall to lead the giant firm the government had just rescued from the brink of insolvency, arrived on Capitol Hill with an understanding of the outrage that has erupted over the bonuses -- but not complete acquiescence.
"We've heard the American people loudly and clearly these past few days," Liddy told an irate House subcommittee, saying that he found the bonuses "distasteful."
But he defended the rationale behind the payments, totaling $165 million to AIG's troubled Financial Products division, reiterating that they were intended to prevent the company from collapsing by deterring vital employees from leaving. He said that "some" of the Financial Products employees have returned their bonuses but did not specify how many. Asked by Rep. Barney Frank (D-Mass.) to provide the names of those who have kept the money, Liddy balked, saying he feared for their safety in light of written threats, including one that said, "All the executives and their families should be executed with piano wire around their necks."
Liddy went before the subcommittee to try to stanch AIG's latest crisis: public anger that has spiraled since the disclosure over the weekend that the company, which has received $170 billion in emergency federal funding, paid scheduled bonuses late last week. The bonuses included more than 70 that were $1 million or more in the division responsible for the company's downfall.
Liddy said he asked Financial Products employees who received at least $100,000 in bonuses to relinquish some of the money. But from the testy mood in the House hearing room, to the White House and the New York attorney general's office, it was plain that AIG's strategy was not containing the crisis.
Rep. Paul E. Kanjorski (D-Pa.), chairman of the House Financial Services subcommittee, scolded the chief executive, saying the decision to go ahead with the bonuses promised in employee contracts could bring down the company -- and ultimately others as well. He said corporations that have received bailout funding are likely to run out of that money soon and will need to ask the government for more.
"Do you realize that the actions that you take at AIG . . . may have jeopardized our ability to get a majority of this Congress to support further largess to provide funds to prevent a recession, depression or meltdown?" Kanjorski asked Liddy.
The House scheduled a vote for today on a measure that would impose an income tax of 90 percent on bonuses that AIG employees received this year. And the Senate Finance Committee is preparing legislation that would capture 90 percent of the bonus money through excise and income taxes. Attorney General Eric H. Holder Jr. announced yesterday that the Justice and Treasury departments are jointly exploring "tools" to recover the money.
Meanwhile, New York Attorney General Andrew M. Cuomo continued to lash out at AIG, saying Liddy's request that employees return part of their bonus money "is simply too little too late."
Cuomo's office said that 418 Financial Products employees have received the bonuses and that 298 of them were paid at least $100,000.
The once-storied division at the center of the storm nearly brought down its corporate parent, the world's largest insurance company, through billions of dollars in losses in its credit default swap business. In that business, the division insured risky mortgage investments by other banks and corporations and considered the insurance premiums its clients paid to be "free money," never expecting those investments to lose value.
David Axelrod, senior adviser to President Obama, stopped short of saying the White House had directed Liddy to request that employees give back bonus money. But he said Treasury Secretary Timothy F. Geithner, in conversations with Liddy in recent days, had "made clear that he would like to see as many of the bonuses recovered as possible."
In his opening remarks on Capitol Hill, Liddy emphasized that he understands the anger that has welled up.
"We are acutely aware not only that we must be good stewards of the public funds we have received, but that the patience of the American -- of America's taxpayers -- is, indeed, wearing thin," said Liddy, who came out of retirement at government request to become AIG's chairman and chief executive for a salary of $1 per year. "The payment of large bonuses to people in that very unit that caused so much of AIG's financial troubles does not sit well with the American taxpayer in any way, shape or form, and for a good reason."
He predicted that many executives will "return the bulk of the money that's been given them, and it will come with their resignations."
With intense public sentiment bearing down on them, neither Democrats nor Republicans sounded fully satisfied. Frank, chairman of the House Financial Services Committee, asked Liddy to send the House a list of employees who do not return their bonuses.
Liddy replied that he would, if the names would remain confidential. "I won't give you that assurance, sir," Frank shot back. "And if you feel unable to do that, then I will ask the committee to subpoena them."
Dozens of employees at the Financial Products division, reached at their offices or homes, declined to comment on the public outrage over the bonus payments -- or whether they would give back the money. A few pleaded that their names not be publicized, saying they are afraid for their families' safety.
Some company officials have said they would have preferred not to make the payments. "In today's environment, it's not defensible to pay these guys this amount of money at a company that's taxpayer-financed, and everybody knows that," said a senior AIG executive, speaking on the condition of anonymity. But the executive noted that about half of the $165 million in bonuses went to Financial Products employees working abroad, raising the legal issue of whether the government will be able to recover the money.
Staff writers Brady Dennis, Paul Kane, Shailagh Murray and Amit R. Paley and staff researchers Lucy Shackelford and Madonna Lebling contributed to this report.